Last year, a French court ruled that Yahoo must block French citizens' access to online auctions of Nazi items on its U.S.-based site or face fines of $14,000 per day.
In response to the order and to public outcry, Yahoo removed Nazi items from its entire system. But it also asked a federal court in San Jose, Calif., to declare French laws unenforceable in the United States.
On Thursday, a federal judge denied a request by French human rights groups to toss out the suit. The ruling clears the way for the U.S. court to consider whether the company must remove material from its entire system, even if it's only distasteful or illegal for citizens of a particular country.
The company said it's pursuing its legal battle in the United States--even though it has removed the items--to prevent other countries from imposing restrictions on U.S.-based Internet companies.
"This case is not just about Yahoo," Scott Morris, Yahoo's manager of international public relations, said. "There are implications for everyone who's involved in the Internet space."
For example, he said, if Yahoo loses the U.S. case, it may have to block items considered illegal in the most conservative Muslim countries, even if they're not offensive to U.S. residents.
"If this happens once, our fear is that it will happen all the time and we'll have countries all over the world placing restrictions on what is on our site," Morris said.
Yahoo has argued that it should only be required to remove items from local sites that cater to people who might find the items offensive.
Yahoo said it has no plans to restore the disputed Nazi memorabilia to its site even if it wins the U.S. case.